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The Honolulu Advertiser
Posted on: Saturday, December 30, 2006

Isle bankruptcies decline 79 percent

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By Sean Hao
Advertiser Staff Writer

The number of bankruptcies filed in Hawai'i this year was down 79 percent as of yesterday, though the drop likely has little to do with the state's economy.

Business and personal bankruptcy filings fell to 951 versus 4,489 filings last year, according to figures from the U.S. Bankruptcy Court in Honolulu.

Bankruptcy filings typically serve as an indicator of how well the economy is doing.

However, this year's plunge in filings was primarily a result of a change in federal bankruptcy law, which made it tougher and more expensive for people to erase debt, said Leroy Laney, a Hawai'i Pacific University economics professor.

This year's drop followed a 57 percent spike in bankruptcy filings last year when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect.

The new law increased the cost of filing and added a requirement that filers attend financial counseling sessions.

"It's not surprising that they're down because of that previous change in the law," Laney said.

This year's low level of bankruptcy filings may not be repeated in 2007. Economists expect Hawai'i's economic growth to slow next year as construction and tourism ease off their record-setting pace of the past few years.

High inflation led by rising housing and energy costs is also expected to weigh on Hawai'i's economy during the next two years.

That means more people will likely struggle financially.

"I would expect that as the economy slows, we'll see an increase" in bankruptcy filings, Laney said. "But we're not looking for a big slowdown in the economy."

Apart from 2005, bankruptcy rates have fallen since 2001 amid an economic expansion driven by strength in real estate, construction and tourism. That has led to strong income and job growth, which helps drive down bankruptcy filings.

Reach Sean Hao at shao@honoluluadvertiser.com.